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Does a win bonus help to increase profit or wins in professional team sports?

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  • Stefan Kesenne

    () (University of Antwerp
    Department of Human Kinesiology, Catholic University of Leuven)

Abstract

In this contribution, we try to investigate the impact of a win bonus on the winning percentage, the competitive balance, the owner profits and the overall quality in a professional sports league in a simple game theoretic approach. We starts from the well-known Quirk and Fort (1992) two-club model. In this model, we introduce a premium system consisting of a win bonus that is paid on top of a fixed salary. Assuming that players are motivated to increase effort if their salary depends on the winning percentage, we derive the Nash-Cournot equilibrium under both the profit and a win maximisation hypothesis. The impact of a premium system turns out to be rather complex, given the fact that clubs react to the strategies of other clubs in the league. The team that introduces a premium system can expect to increase its profits or its winning percentage by paying a bonus combined with a reduced fixed salary. A crucial factor, though, is the players’ response to the win bonus. If the team’s effort is not enhanced enough by the bonus, the team’s profits and wining percentage can go down. Also the effect that the winning percentage has on club revenue is an important factor.

Suggested Citation

  • Stefan Kesenne, 2007. "Does a win bonus help to increase profit or wins in professional team sports?," IASE Conference Papers 0713, International Association of Sports Economists.
  • Handle: RePEc:spe:cpaper:0713
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    File URL: http://www.fitinfotech.com/IJSF/IJSF.tpl
    File Function: Paper presented at the 9th annual IASE Conference in Dayton, Ohio, May 2007
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    References listed on IDEAS

    as
    1. Wallace Hendricks & Lawrence DeBrock & Roger Koenker, 2003. "Uncertainty, Hiring, and Subsequent Performance: The NFL Draft," Journal of Labor Economics, University of Chicago Press, vol. 21(4), pages 857-886, October.
    2. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
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    Keywords

    sports;

    JEL classification:

    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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